Honeywell Lifts Business Jet Deliveries Outlook as Pandemic Recedes; Target Price $214

Honeywell International, which manufactures parts for planes made by Boeing and Airbus SE, lifted its guidance for business jet deliveries and said the industry has almost completely shaken off the effects of the COVID-19 pandemic.

The worldwide technology and manufacturing company in its 30th annual Global Business Aviation Outlook forecasts up to 7,400 new business jet deliveries worth $238 billion from 2022 to 2031, up 1% in deliveries from the same 10-year forecast a year ago.

Earlier this month, Honeywell increased its regular annual cash dividend to $3.92 a share from $3.72. The increase is effective with the fourth-quarter dividend of 98 cents per share. This follows a dividend of 93 cents in July.

The Charlotte, North Carolina-based company will issue its third-quarter financial results before the opening of the Nasdaq Stock Market on Friday, October 22. It is expected to report its third-quarter earnings of $2.00 per share, which represents year-over-year growth of over 28% from $1.56 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of about 5%. Honeywell shares rose over 2% so far this year. The stock closed 0.30% lower at $217.70 on Friday.

Executive Comments

“The increased demand for used jets is estimated at more than 6,500 units over the next five years, putting pressure on an already record low inventory and driving additional demand for new jets,” said Heath Patrick, president, Americas Aftermarket, Honeywell Aerospace.

“Our latest operator survey results support continued private jet usage growth, as more than 65% of respondents anticipate increased business jet usage in 2022. Despite the ongoing challenges presented by the pandemic, flight hours have recovered and grown beyond pre-pandemic levels. The overall health of the business jet market is strong, and growth is expected to continue.”

Honeywell Stock Price Forecast

Eleven analysts who offered stock ratings for Honeywell in the last three months forecast the average price in 12 months of $241.82 with a high forecast of $259.00 and a low forecast of $229.00. The average price target represents an 11.08% change from the last price of $217.70. From those 11 analysts, six rated “Buy”, five rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $67 with a high of $96 under a bull scenario and $35 under the worst-case scenario. The firm gave an “Overweight” rating on the manufacturing company’s stock.

“Honeywell’s (HON) long-cycle businesses should start to recover more substantially later in 2021 with Aero’s trajectory less certain. We expect Aero to remain weak through 2021 as flight hours see sharp declines and maintenance gets deferred until 2022,” noted Joshua Pokrzywinski, equity analyst at Morgan Stanley.

“The company’s software offerings should be very attractive to customers as digital transformation accelerates post-COVID and we believe this can partially offset the delayed recovery related to the longer cycle core businesses. We see HON’s balance sheet capacity and repatriation potential as attractive, especially given management’s discipline in M&A to appropriately balance growth, value, and disruption.”

Several other analysts have also updated their stock outlook. RBC cut the target price to $229 from $231. UBS raised the target price to $230 from $220. Cowen and company lifted the target price to $250 from $240.

Analyst Comments

“We think that Honeywell (HON) stock currently is a better pick compared to Rockwell Automation stock, despite Rockwell’s revenue growing at a faster pace over the recent years. Honeywell trades at about 4.4xtrailing revenues, compared to 5.1x for Rockwell. Although both the companies saw a decline in revenue due to the pandemic, Rockwell has seen a sharp recovery aided by new orders and impact of ASEM, Kalypso, and Fiix acquisitions,” noted equity analysts at TREFIS.

“Honeywell, on the other hand, is still seeing slower revenue growth, primarily due to its exposure to the aerospace segment, which was one of the worst-hit businesses during the pandemic. However, there is more to the comparison. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth.”

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